Capitalism with a Human Face?

By CIPD's Scotland Senior Public Policy Adviser, Marek Zemanik.

Around this time of year everybody reflects and looks ahead - to a new year and a new decade. I started this year looking back a bit further. You see, last year marked 30 years since the fall of communism in Czechoslovakia, undoubtedly the most important socio-political moment in my life and that of millions of others. Without it I would not be here, with this life, this job, this family.

1989 brought the end of four decades of totalitarian one-party control that seemed unbreakable. The regime, however, already wobbled 20 years prior to that. In the 1960s public dissatisfaction grew, the economy was in trouble and the Party was split on how to move forward. Eventually a series of reforms were announced under the moniker of “Socialism with a Human Face” - a gradual move towards greater political and media freedom and some trade and market liberalisation. The Soviet Union found this unacceptable. This brief period of hope was crushed under the tracks of over 6,000 tanks in August 1968.

How on Earth is this in any way relevant to the CIPD you ask? Well, allow me to take a leap and draw a very broad parallel between the above and the state of capitalism today. I am of course conflating political and economic concepts here, but this is a blog, not a philosophy essay. The fact is, trust in business is low - in the UK and globally. Governments don’t fare much better. The seeming radicalisation of our politics - by which I mean a move away from the UK’s 20-year-long orthodoxy of the political center - is undoubtedly an outcome of public anger with “the system”. The capitalist liberal democratic end of history prophesied by Fukuyama is looking a bit shaky. Perhaps it’s time for a deeper change - a “Capitalism with a Human Face.”

The last few years - especially following the 2008 financial crisis - have seen an increasing focus on the shortcomings of capitalism as a system and the failings of individual companies. The Guardian’s Broken Capitalism series is one such example, but this is definitely not a topic solely for the so-called centre left. The Financial Times last year launched their Reset Capitalism agenda, arguing that how companies collectively behave is undermining liberal democracies. This was a big and important step from an unexpected source.

So perceptions are bad and thinkers across the political spectrum argue something needs to change, but what are the actual problems and what can be done? The list can be long, but it is spread across poor outcomes (lagging productivity, stagnating wages, rising prices with little competition) and what we could call poor behaviours. I think four areas stand out in the latter category - tax, environment, workers’ rights and executive pay. 

Tax avoidance and tax evasion have traditionally been at the top of the agenda for governments as they make for powerful news stories. Environmental issues, given we started this decade with apocalyptic images from Australia, are likely to dominate the coming years. Workers’ rights have increasingly been in the spotlight in recent years too. The CIPD will continue to lead the way on good and fair work, providing evidence-led recommendations to governments and companies that can improve working lives for all of us. And only this week research by the CIPD and the High Pay Centre has shown how out of kilter executive pay has become - the median pay for FTSE 100 company CEOs is 117 times higher than the UK’s average full-time employee.

In the simplest of terms, it is time for businesses to broaden their focus from shareholders to stakeholders. Of course, these two are not mutually exclusive. As the Financial Times Editor Lionel Barber said: “the model has come under strain, particularly the focus on maximising profits and shareholder value. These principles of good business are necessary but not sufficient.” To borrow a quote from what feels like decades ago - we really are all in this together.

Why would Capitalism with a Human Face be attractive to businesses and their shareholders? Sometimes the simplest answers are correct - because it is the right thing to do. Paying a fair share of tax to fund public services that your consumers rely on is the right thing to do. Prioritising the environment when climate change is threatening the entire planet is the right thing to do. Thinking harder about whether your employees are happy and what you can do to improve that is the right thing to do. And, who knows, doing the right thing might even give the company a competitive edge amongst increasingly savvy consumers. It may result in a more productive workforce. And it may lead the way for others.

Changing business models to be guided by responsibility, with communities and societies an integral part of a company’s values, is the right thing to do and it could even bring traditional business benefits, but it is also the future. Consumers, after all, are voters too. From gender pay gap reporting, through better parental leave policies, to executive pay transparency, governments will act if voters instruct them to. In Scotland, even without employment law powers, the government has used its non-legislative muscle to nudge companies through the Scottish Business Pledge or the Fair Work First approach. 

The facts are that consumers choose daily and voters choose only every few years - but certainly with greater consequence. Look at what your employees, consumers and voters are telling you. Capitalism needs to change or it will be changed. Over to you.


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